The Bank of Uganda (BoU) has reduced the Central Bank Rate (CBR), a benchmark lending rate for commercial banks, to 9.5% in October, down from 10% in August 2017.
This means that commercial banks are expected to follow suit by reducing on their interest rates charged on borrowers.
Releasing the Monetary Policy Statement for October 2017 at BoU head offices in Kampala on Tuesday, Prof. Emmanuel Tumusiime-Mutebile said that given that annual core inflation is forecast to remain around the medium-target of 5% and economic activity is slowly gaining momentum, a cautious easing in the Monetary Policy was warranted to boost private sector credit growth and to strengthen the economic growth momentum.
Uganda’s Annual Headline Inflation for the year ending September 2017 was recorded at 5.3% compared to the 5.2% reported during the year ended August 2017.
This represents a 0.1 percentage point increase from the previous month. On the other hand, Annual core Inflation was recorded at 4.2 percent for the year ending September 2017 compared to 4.1 percent for the year ended August 2017.
The rise in inflation was largely driven by an increase in the cost of fuels.
However, despite BoU’s continued easing of the monetary policy, the growth in private sector credit remains subdued. BoU says demand for credit is high but loan approvals by banks remain low largely due to the high Non-Performing Loans (NPLs) many banks have had in recent years.
Mutebile however said the economy is projected to grow at annual rate of 5.0-5.5% in 2017/18, which is a bit lower than estimates of potential GDP growth.
